Commerce Secretary Seeks Compromise on Encryption

Administration Reconsiders F.B.I. Position

By Jeri Clausing

Washington, April 15 -- The Clinton Administration's attempts to control
encryption technology have been a failure and are forcing American software
makers to concede ground to foreign competitors, Commerce Secretary William
M. Daley said today.

Mr. Daley's remarks, made in a speech
here to the high-technology industry, were the strongest indication yet
that the Administration was seriously considering parting ways with Louis
Freeh, the Director of the Federal Bureau of Investigation, and other law
enforcement and spy agencies over the issue of how data should be scrambled.

"We are headed down a lose-lose path, and we have to get back to win-win,"
Mr. Daley said. He blamed both industry and law enforcement officials for
the failed policy, saying that the two sides had failed to find a reasonable
compromise between the need to monitor the activities of criminals and the
need to offer consumers strong security for on-line transactions.

The purpose of his speech today was to release the Commerce Department's
first comprehensive report on
the impact of electronic commerce on the nation's economy. The report shows
that information technology, including business on the Internet, is growing
twice as fast as the overall economy, employing some 7.4 million workers
at salaries 64 percent above the national average.

But while the report was full of impressive numbers and glowing predictions
for the future, Mr. Daley said that strong encryption and a solid encryption
policy were essential if electronic commerce was to realize its full potential.

Mr. Daley's blunt comments marked the first public acknowledgment that the
Clinton Administration's encryption policy had failed. And his remarks echoed
what the industry has contended for years -- that foreign companies are fast
taking over the high-demand market for products that protect the privacy
of communications.

The software industry is currently prohibited from exporting strong encryption
programs, which scramble data in ways that make it difficult or impossible
for unauthorized people -- including law enforcement agencies -- to decode.
Such software is essential to electronic commerce, which requires that credit
card information and other private data be encrypted when products are ordered
on the Internet.

The software industry has long argued that the export rules put American
companies at a great disadvantage relative to foreign competitors not under
such restrictions. Mr. Freeh and the National Security Agency argue that
the threat of terrorists and other criminals scrambling data to thwart law
enforcement is so great that the export restrictions should be removed only
if the police are given keys to unlock encrypted data.

At the end of 1997, Mr. Daley said, an estimated 656 encryption products
were being produced in 29 countries outside the United States. Products from
Germany, Ireland, Canada, Israel and Britain can compete with anything made
domestically, he said, and can meet the needs of the world's computer networks.

"Our policy, ironically, encourages the growth of foreign producers at the
same time it retards growth here," Mr. Daley said. He called for a sincere
dialogue between industry and law enforcement, but stopped short of saying
that the Administration would withdraw its support of the F.B.I. and N.S.A.
position.

"There are solutions out there," Mr. Daley said. "Solutions that would meet
some of law enforcement's needs without compromising the concerns of the
privacy and business communities. But I fear our search has thus far been
more symbolic than sincere.

"The cost of our failure will be high. The ultimate result will be foreign
dominance of the market. This means a loss of jobs here, and products that
do not meet either our law-enforcement or national security needs."

Mr. Daley declined to offer examples of what the Administration might be
willing to give up to reach an agreement.

Harris N. Miller, president of the Information Technology Association of
America, said that companies were willing to continue discussions with the
Administration, but he asserted that Government officials "think compromise
is something in the middle; sometimes compromise is found outside of the
box."

Mr. Miller said that the solution needed to be a technical one, perhaps one
that gave law enforcement better training and equipment to crack encrypted
criminal communications without requiring that everyone hand over spare keys
to their computer files.

"Law enforcement has legitimate concerns," Mr. Harris said. "What we disagree
with is their demand for unlimited access."